Ladies and gentlemen, good morning.
1. Thank you everyone for the kind invitation for me to speak today.
2. Let me start by applauding this new network SID has formed for company secretaries. I think it is a very good way to connect, exchange ideas, and support each other, especially because you play such an important role in ensuring good corporate governance. I certainly look forward to working with all of you as part of the community to achieve our common goal of promoting trust and confidence in our markets.
3. I must say that I have had interesting conversations with some of you recently. We talked about how in a disclosure-based regime, given your integral part in the continuous disclosure process, perhaps you should start calling yourself “Chief Governance Officer” to better reflect your responsibility.
4. Indeed, company secretaries play a critical role in being the bridge between the board of directors on the one hand, and senior management of the company on the other. You can advise senior management on the issues that should be escalated to the board and advise the board on emerging best corporate governance practices. By being wise counsel to both, you enhance the flow of information and decision-making process within your organisations.
5. I was also struck by this idea of “active governance” that you are talking about, how as company secretaries you should be actively keeping an eye out for changes on the horizon and enhancing the governance structure of your companies to ensure that they are fit for purpose. I think this is an excellent approach and very timely for the topic that I am going to cover today.
The importance of climate-related disclosures
6. So one emerging area that you should definitely take note of is on climate change. The Intergovernmental Panel on Climate Change (IPCC) published a landmark report detailing the global state of climate change and its findings are alarming. The report highlights the massive and detrimental impact of human activity on the environment and points to the risks of a long-term warming trend, which has potential for unprecedented economic and social upheaval if we stay on this trajectory. The report serves as another wake-up call that addressing climate change should be a priority on every company’s agenda.
7. There is, in fact, a legal view that it is part of a director’s duties to consider the impacts of climate change. In a legal opinion commissioned by the Commonwealth Climate and Law Institute, a team of Singapore lawyers led by a senior counsel opined that directors would do well to understand and take action to ensure that the company’s business operations are sustainable and safeguarded from climate risks. Failure to do so can result in criminal and civil liabilities for companies and their officers, including directors and potentially even company secretaries!
8. In the United States, it is increasingly common to see climate-related shareholder resolutions being filed during proxy season. Investors are seeking better disclosures of potential climate impacts on businesses and asking companies to act. Given the investor and stakeholder interest, it will come as no surprise that the US Securities and Exchange Commission (SEC) has conducted a policy consultation on climate reporting. It will also come as no surprise that it is expected to move towards rule making.
9. In Singapore, we have had mandatory sustainability reporting since 2016. Since then, most issuers have produced 3, perhaps 4, sustainability reports. A survey we conducted together with NUS Business School’s Centre for Governance and Sustainability (CGS) showed that by and large, these reports were improving in terms of the disclosures. But I think there is still generally an impression that several things are lacking. For example, while insurers, investors, and lenders we recently surveyed indicated they wanted more information about the climate risks faced by companies, this sort of data was largely absent in the sustainability reports that we and CGS reviewed.
10. This sort of disconnect is something I have already signalled publicly on more than one occasion, that we are planning to address. We intend to do so by requiring climate disclosures in sustainability reports in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Without going into too much detail, this will require disclosures of the company’s governance around climate risks and opportunities, strategy, risk management and metrics and targets. You can expect an imminent public consultation on these changes, sooner than you think.
11. Some of you are from companies that have done well despite the pandemic, others may be from companies that have been more badly affected, and you, or your directors and senior management may be asking whether you can afford to do this now. The right question rather, is whether you can afford not to do it. The movement towards TCFD disclosures is being driven by stakeholder demand, and I am not just talking about investors, but also lenders, insurers, customers and suppliers. If your company fails to act, you risk increasing your cost of funding and being denied access to financial facilities and supply chains.
12. In fact, market participants too are taking very seriously the importance of climate-related information, and the consequences of not providing it. Several have indicated to me that SGX RegCo, as regulator, needs to strictly oversee and even take firm enforcement action on companies that fall short in terms of addressing disclosures of material climate risks. You as company secretaries therefore must convey to your boards the market’s increasingly serious stance on sustainability reports and climate information. These are no longer “check the box” exercises or “nice-to-haves”. Rather they are front and centre in the eyes of the market and so must therefore be front and centre for the board and management.
13. The next question you may ask is whether we can take a differentiated approach depending on the size of the company, because bigger companies have more resources to do this compared to smaller companies. That is one way to cut it. Another may be to consider a phased approach, where some companies do climate reporting first. This prioritisation may for example be based on the impact of the company’s activities on the environment. The TCFD itself has identified certain carbon intensive industries, such as those in the energy, transportation, agriculture, building and construction sectors.
14. We are conscious that the TCFD is new to most of you, and it can be a potentially challenging and technical subject. So, we are planning to provide capacity building and resources, including in-person and online training and guides to help preparers of the sustainability report, such as yourselves.
15. Another area where companies may need help is on the report itself. As you may know, stakeholders have been calling for a common sustainability reporting format so that reports can be to be more comparable to facilitate their decision-making. The TCFD recommendations solve the problem of comparability for climate information, but there is still a lack of consensus on what should be reported for non-climate information.
16. Many companies already report similar environment, social and governance (ESG) metrics, such as water consumption, waste generation, occupational health and safety, and ethical behaviour. We are looking to issue guidance to build a common set of core metrics among our listed companies. A digital solution, such as a data portal, can also potentially facilitate your reporting and allow stakeholders to access the ESG data in a structured format.
17. Your final question may then be what you need to do to help your company comply with the new requirements.
18. First, you can help ensure that your company has the right governance structure. While the current rules only require a board statement in the sustainability report, that could be changing soon. You should consider giving more granular disclosures on the respective roles of the board and senior management.
19. Second, you can help to update the board agenda and the terms of reference of the relevant board committees, to cover all the TCFD areas, including strategy and risk management.
20. Finally, as a preparer of your company’s sustainability report, you should give inputs to the board on the level of assurance, internal or external, that you think is appropriate for it to ensure that the report is accurate and complete.
The spotlight on board diversity
21. The final area I want to touch on today is on board diversity. The benefits of a widely diverse board, both from a business and governance point of view, are well documented. Global regulators have also recognised the importance of diversity and have begun to introduce more prescriptive rules.
22. How is Singapore doing in this respect? A recent report by PwC on board diversity disclosures in Singapore was quite revealing. It found that while nearly 80% of the companies surveyed had disclosed a board diversity policy, only 10% disclosed quantitative objectives that could be used to measure progress, and none of the companies defined qualitative objectives for board diversity.
23. The Code of Corporate Governance already recommends companies to disclose the objectives of the board diversity policy and the progress made. But I have previously signalled that we believe that more can be done, and we are going to propose mandating greater disclosure around board diversity.
24. One area we are looking at is the mandatory disclosure of targets. You can help the Nominating Committee by conducting a board evaluation to identify the right mix of skills and perspectives and what needs to be done to achieve this.
Conclusion
25. In closing, I would like to circle back on the IPCC report and note that UN Secretary-General António Guterres said that the report was “a code red for humanity”. It is time for us to seriously put sustainability at the heart of everything we do, and I look forward to your help to put this at the top of every board’s agenda.
26. On that note, I wish you a good day ahead. Thank you very much.
